During the second week of September, Alberta packers were buying fed cattle on a dressed basis in the range of $406-$410/cwt, down from prices of $425-$428/cwt a month earlier.
Beef demand appears to be softening as unemployment levels increase. In addition to weaker consumer spending, September and October are two months when beef demand typically makes seasonal lows.
In the U.S., market-ready fed cattle supplies appear to be increasing and carcass weights continue to hover sharply above year-ago levels. In Western Canada, feedlots are more current with production and lower placements through the summer months. This will result in a year-over-year decrease in market-ready cattle through the fall and winter.
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The North American fed cattle market appears to be trending lower, although basis levels in Alberta are expected to remain firm. The yearling market has been holding value, although supplies in the Prairie provinces are similar to year-ago levels, according to Statistics Canada data.
At the time of writing this article, calf prices are quite variable as the market remains in discovery mode. Feed grain prices are expected to percolate higher and deferred live cattle futures are under pressure.
U.S. feedlot placements during the first quarter of 2024 were 5.428 million head, down only 218,000 head from the first quarter of 2023. During the second quarter, placements were 5.292 million head, down only 171,000 head from the same timeframe of 2023. Placements are down but the U.S. weekly slaughter has also been running below year-ago levels.
Therefore, market-ready fed cattle supplies in the U.S. at the end of September are expected to be in excess of 100,000-125,000 head. There will be a surplus supply of fed cattle at the end of September.
This comes at a time when carcass weights are running 25 pounds above year-ago levels. U.S. third-quarter beef production is expected to finish near 6.675 billion lbs., up 50 million from last year.
U.S. fourth-quarter beef production is projected to reach 6.735 billion lbs., down about 75 million from the final quarter of 2023. Packers will purposely curtail the slaughter pace in the final quarter due to lower beef demand. This will keep market-ready fed cattle numbers above year-ago levels.
In Alberta and Saskatchewan, feedlot placements in the first quarter of 2024 were 394,100 head, down only 11,500 head from 2023. During the second quarter, placements in the two Prairie provinces were 2,298,500 head, down only 17,300 from the same period of 2023.
Unlike the U.S., the Canadian weekly slaughter is running similar to last year while fed cattle exports have been above year-ago levels.
During October through December 2024, market-ready fed cattle supplies in Western Canada will be down 25,000 head each month compared to 12 months earlier. This will keep the Alberta fed cattle basis firm through the fall and winter period. Last year, the fed cattle basis fell apart over the winter, moving to historically wide levels. This fall, the basis will be average to above average.
Canadian employers shed 43,600 jobs full-time jobs in August, causing the unemployment rate to reach 6.6 per cent. Canadian household spending during the second quarter of 2024 was down 1.3 per cent from the same period of 2023. This year-over-year drop in spending is considered a recessionary pace.
U.S. unemployment levels are also increasing. The media reports the “U3” unemployment rate, but some of these people counted as employed may be working as little as one hour per week. The more representative figure of the job market is the “U6” unemployment rate. This level was 7.9 per cent in August. This is the highest level since November 2021 when the U.S. was coming out of recession.
U.S. consumer spending peaked in July but appears to be trending lower in line with the seasonal tendency. The U.S. economy will experience slower growth in upcoming quarters and there is potential for economic contraction over the next year.
Heading into the fourth quarter, market-ready supplies of fed cattle supplies exceed demand, and weights are above year-ago levels. Consumer spending is expected to soften moving forward. This will result in lower fed cattle prices. In Alberta, the basis levels will remain firm due to the lower supply situation, but the overall market will trend lower due to weaker demand.
Statistics Canada released its July 1 livestock inventory report on Aug. 23. Western Canadian yearlings on backgrounding and cow-calf operations as of July 1 were 1.109 million head, up 15,000 from July 1, 2023. Total calves outside finishing feedlots as of July 1 were 2.82 million head, down 74,300 head from July 1, 2023. Yearling supplies are up while calf numbers are down from year-ago levels.
At the time of writing this article, steers weighing 1,000 lbs. were averaging $320/cwt in central Alberta. Yearling prices have been bid up high enough so that margins in the finishing feedlot will equate to negative $200-$250/head over the winter.
Steers averaging 550 lbs. have been averaging $430/cwt in central Alberta. We’re expecting the yearling and feeder market to trend lower during the fall and winter as live cattle futures come under pressure. March feeder cattle futures have been trading at a $10/cwt discount to the nearby September contract. This is a bearish signal. Sell calves and yearlings sooner, rather than later.
